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Franklin Weinrib Rudell Vassallo: 6/25/04
Marvel Enterprises in Federal Court Action
Insurance Company Held Obligated to Defend Marvel Enterprises in Federal Court Action Michael I. Rudell
Jun 25, 2004 -- (Originally published in the Entertainment Law column in the New York Law Journal, June 25, 2004.)
Financiers and distributors of motion picture and television productions almost always require the production entity to have a form of media liability insurance coverage. The policy will include a provision requiring the insured to give timely notice to the insurer when a claim covered by the policy arises. In a recent New York State decision, Marvel Enterprises, Inc. was granted summary judgment in its claim for a declaratory judgment which involved the issue of whether it had given General Insurance Company of America, Inc. (“GICA”) timely notice of a claim.1
In April, 2000, GICA issued a media liability insurance policy to Marvel relating to claims arising from copyright infringement, misappropriation of ideas, trademark infringement, unfair competition and deceptive trade practices. It covered the period from April 30, 2000 to April 30, 2001.
In 1993, Marvel had licensed to Twentieth Century Fox Film Corporation (“Fox”) the rights to create, produce, distribute and promote live action feature length motion pictures based upon the comic book characters known as the “X-Men.” Under this license, Fox produced a feature film “X-Men” which was released theatrically in July of 2000.
In August of 2000, Marvel began developing the idea for a new television series that was to feature new Marvel characters which, as a result of genetic experiments, displayed physical mutations. On August 9, 2000, Marvel entered into an agreement with Tribune Entertainment Company, Inc. for the production of a weekly television series of hour-long episodes based upon this concept. In January of 2001, promotional materials relating to this series, ultimately entitled “Mutant X,” were distributed to the entertainment industry.
Fox claimed that the new series was merely a thinly veiled version of “X-Men.” It sent Marvel a letter dated March 19, 2001 asserting that the production and distribution of the “Mutant X” series violated its rights. The letter then stated “Fox hereby demands that any further development, production and distribution of ‘Mutant X’ cease immediately and Fox will take all appropriate action to enforce its rights, and will seek such remedies as may be necessary to protect itself against such a flagrant and willful breach of our agreement.”
The letter also requested that “In order to prepare for the contingency of litigation, Marvel retain all documents, including e-mails, related to this project and notify Tribune Entertainment, Fireworks and any other entities involved with the production or distribution of ‘Mutant X’ to do the same.” It further stated that “The foregoing is not a complete statement of the facts or of Fox’s position or potential claims or causes of action against you, and all of Fox’s rights and remedies are reserved.”
Marvel faxed a copy of the letter to its insurance broker (“HRH”), with a cover sheet indicating that the letter was being forwarded “because it might result in litigation from Fox regarding ‘Mutant X’.” HRH set up a file for the letter, but did not notify GICA or First Media Insurance Agency, GICA’s agent, of the receipt of the letter or its contents. In an exchange of internal e-mails, the claims manager for HRH noted that no claim for damages had been asserted by Fox, although he characterized the letter as “claim for injunctive relief.” He concluded that notification to GICA was not required, as no suit had yet been filed.
Marvel, having engaged an outside law firm to investigate the allegations of Fox, concluded that litigation was all but inevitable and authorized that firm to prepare and file an action seeking a declaratory judgment that the production and distribution of the “Mutant X” series did not violate Fox’s intellectual property rights or otherwise breach the licensing agreement with Fox. On the same day that Marvel filed its action, Fox commenced its own, alleging, among other things, causes of action against Marvel for breach of contract and copyright infringement. The two actions were consolidated by the district court and Fox moved for injunctive relief.
HRH, in response to an inquiry from First Media, forwarded to First Media copies of both complaints, the March 19, 2001 letter from Fox and Marvel’s notice of claim.
In its letter acknowledging and responding to its receipt of these documents, First Media noted that the insurance policy excluded coverage from claims arising from breach of contract, and thus coverage would not be available for any legal expense or loss arising from such clauses of the action. First Media further advised HRH that Marvel’s declaratory judgment action did not fall within the definition of a “claim” contained in the policy, but indicated that the policy did provide coverage for copyright and trademark infringement, unfair competition relating thereto and deceptive trade practices. It requested that HRH provide additional information concerning the underlying dispute and reserved all of GICA’s rights under the policy as to these causes of action.
In July of 2001, HRH tendered to First Media four invoices totaling in excess of $952,000 for legal services and disbursements incurred from March 22, 2001 through June 30, 2001. It requested payment of this amount, plus additional amounts which Marvel had paid directly between March 22 and March 31, 2001.
On October 1, 2001, GICA commenced an action against Marvel for a declaratory judgment, alleging that the claims asserted by Fox in the federal court litigation all fall within the breach of contract claim exclusion. It further alleged that Marvel failed to cooperate by not apprising it of developments or providing it with information necessary to assess coverage. GICA alleged, for the first time, that Marvel’s Notice of Claim was untimely in that Marvel had failed to comply with the notice provisions of the policy by failing to submit a Notice of Claim upon receipt of the March 19, 2001 letter from Fox.
Marvel responded by asserting a counterclaim for a judgment in its favor and subsequently moved for summary judgment with respect to the causes of action asserted by GICA.
The Court granted Marvel’s motion for summary judgment in part, finding that, except for two contract claims, all of the claims asserted by Fox against Marvel in the federal court litigation fell within the risks covered by the policy. However the Court denied Marvel’s motion with respect to GICA’s claim that the Notice of Claim was untimely, finding that issues of fact exist as to whether the March 19, 2001 letter from Fox to Marvel constituted a demand for relief that qualified as a claim under the terms of the policy, and, if so, whether the 29 day interval between that letter and Marvel’s April 17, 2001 Notice of Claim to GICA qualified as timely notice. This issue was referred to a Special Referee who concluded that the March 19, 2001 letter from Fox constituted a claim against Marvel under the policy, and thus, that Marvel’s April 17, 2001 Notice of Claim was untimely. GICA moved to confirm the Referee’s report; Marvel moved to vacate it. Both parties moved for summary judgment.
The Court examines whether the findings of the Special Referee are supported by the record. Marvel argues that those findings should be rejected because GICA waived its defense of late notice by failing to include the defense among its grounds for denying coverage in the original April 18, 2001 letter of disclaimer.
The Court indicates that GICA appears to have been in possession of all the information it would need to disclaim coverage on the ground of untimely notice. GICA reserved its rights and did not limit that reservation solely to those reasons which might “become apparent in the future” but, instead expressly reserved all of its rights under the contract. Under these facts, GICA did not waive its defense of late notice as a matter of law and the Report cannot be rejected on that ground.
The Court next examines whether the March 19, 2001 letter qualified as a claim under the policy. This is relevant because the Notice of Claim provision in the policy provides that “The insured shall provide notification of any potentially covered claim as soon as reasonably possible to the Company or any of its agents by forwarding all suit papers and documents.” The policy specifically defines a claim as “a demand or suit for money tendered to the insured for loss or injunctive relief, even if any of the allegations are groundless, false or fraudulent, or a request to toll or waive any applicable statute of limitations relating to a claim or potential claim. . .“
Marvel argues that the Report of the Special Referee should be rejected because the language of the policy demonstrates that the March 19, 2001 letter is not a “claim” thereunder. The Court agrees with Marvel indicating that the Notice of Claim provision in the policy explicitly requires Marvel to notify GICA only of any “potentially covered claim,” not of potential claims, nor does it alter or amend the definition of “claim” contained in the policy.
The policy specifically defines claim as a “demand or suit for money tendered to the insured for loss or injunctive relief.” According to the Court, “injunctive relief” is, by definition a judicial remedy; thus, a letter to another party, even one containing strongly worded cease and desist language and a threat of litigation, cannot constitute a demand for “injunctive relief” as that term would ordinarily be understood.
The Court states that when proper deference is given the definition of “claim” contained in the policy, the Special Referee’s finding that the March 19, 2001 cease and desist letter qualifies as a claim is not supported by the record. Accordingly, the Court grants Marvel’s motion to reject the Report and denies GICA’s motion to confirm the Report.
In light of the above, Marvel’s motion for summary judgment seeking a declaratory judgment that GICA is obligated to defend it in the underlying federal court actions is granted.
Although the decision in this case is quite fact-specific, it does point out the need to be aware of and comply with the specific provisions of each insurance policy.
ENDNOTE
1 General Insurance Company of America, Inc. v. Marvel Enterprises, Inc. 2004 WL 483212 (N.Y. Supp.) Index No. 604690/01 (March 9, 2004)
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